A Spousal Roth IRA For Your Spouse

Can you open a spousal Roth IRA for your spouse?

This is an important question you need to answer, especially if your spouse earns little or no income during the course of the year.

For instance, let's say you work a typical 9 to 5 job while your spouse stays at home with the kids. Or maybe your spouse took an early retirement...

If that's the case, can you set up a Roth IRA for your spouse?

The answer is yes... and no.

Yes, your spouse can open and fund a Roth IRA, but...

No, you can't technically do it for them.

Why?

Because you're not them!

Remember, a Roth IRA is an Individual Retirement Arrangement. Notice the key word there?

Only the individual in question can open and fund a Roth IRA. There's no such thing as a joint account when it comes to a Roth IRA, so only your spouse can open his or her account.

You can certainly make your spouse the beneficiary of your account, but while you're alive, your Roth IRA is yours. And likewise, your spouse's Roth IRA is theirs.

Can Your Spouse Have a Roth IRA Too?

So while you can't literally open and fund a Roth IRA for your spouse, they can open and fund one themselves, even if they generated zero earned income during the course of the tax year.

Why?

Well, that's where the term "spousal Roth IRA" comes from.

While an actual spousal Roth IRA doesn't officially exist, the term is typically applied to a Roth IRA funded with a spouse's income.

But wait, you say... Don't you need earned income in order to contribute to a Roth IRA? If so, how can you fund a Roth IRA with your spouse's income?

Yes, it's true that in almost every case the individual opening a Roth IRA needs to have earned income in order to fund an account.

But the IRS makes a special exception for married couples who file a joint tax return...

Take note of that last sentence. It's important.

Simply being married is not enough to qualify for a spousal Roth IRA contribution. You need to be married and file a joint tax return. The special exception doesn't apply if you're married and file a separate tax return.

But if you are married and file a joint tax return, both you and your spouse can open and fund Roth IRAs, even if one spouse fails to generate a dime of earned income...

Spousal Roth IRA Contributions

So what are the rules governing spousal Roth IRA contributions?

They're essentially the same contribution rules which govern your Roth IRA if you're married, file a joint tax return, and both spouses earn income.

The combined income of the two spouses is treated like one income, regardless of who earns it. One spouse can earn 100% of the household income or each spouse can earn 50%. It doesn't matter who earns what as long as you abide by the income limits for making a contribution.

For example, let's say you and your spouse file a joint tax return. You both earn $52,000, for a grand total of $104,000. You're 52 years old and your spouse is 50 years old...

Under the law, each of you is eligible to contribute a maximum of $6,000.

Why?

Because you're both over the age of 50 and your combined income is less than $166,000.

But let's say the same circumstances apply with one exception... You earn $104,000 while your spouse earns zero.

How much are you eligible to contribute now?

The same amount... $6,000 each.

Why?

Because your combined income is treated the same way even though one of you generated all of the earned income. Since you're married filing a joint tax return, your spouse is exempt from the earned income requirement.

As long as your combined household income is more than the amount of your combined Roth IRA contributions, you shouldn't have any problem funding separate Roth IRAs.

However, just because the earned income requirement is waived, it doesn't mean that other rules don't apply. A spousal Roth IRA is still subject to all the normal rules which pertain to a Roth IRA, such as Roth IRA contribution income limits...

Spousal Roth IRA Income Limits

The income limits for making a contribution to a spousal Roth IRA are the same regardless of whether you make 100% of the household income or you and your spouse each make 50%.

And, of course, the amount you can contribute to a Roth IRA in any given year varies along with your age and tax filing status...

Married Filing Jointly

If you file a joint tax return with your spouse, then the current maximum combined income you can earn and still contribute to a Roth IRA is $176,000. If you earn above $176,000, neither you nor your spouse can contribute to a Roth IRA.

In order to make the maximum Roth IRA contribution for this year, you and your spouse must earn $166,000 or less. Between $166,000 and $176,000, the amount of your Roth IRA contribution limit varies, so consult an accountant in order to find out the exact amount you're eligible to contribute.

So... If you earn $166,000 or less, what is the maximum contribution you can make?

• $6,000 if your spouse is 50 years old or older
• $5,000 if your spouse is under the age of 50

Let's look at an example...

Say you and your spouse are both 27 years old. You earn $100,000 per year, and your spouse generates zero dollars in earned income, choosing instead to stay home with the kids and take care of household affairs.

How much can you contribute?

Well, the maximum annual contribution limit in this case is $5,000.

So you can contribute $5,000 to a Roth IRA, and your spouse can contribute $5,000 to a Roth IRA.

Married Filing Separately

If you and your spouse file separate tax returns, then you need to fund your Roth IRA with your own earned income. In such a case, the amount you can contribute varies depending on whether or not you lived with your spouse for any part of the year.

For more information on how much you can contribute to your Roth IRA, please see Roth IRA income limits.

Conclusion

The term spousal Roth IRA is somewhat misleading...

If your spouse has little or no earned income, they can have a Roth IRA. But they need to open the Roth IRA themselves. In doing so, the IRS waives the requirement that a Roth IRA account holder fund their account with earned income generated by their own mental or physical labor.

This allows your spouse to fund his or her account with earned income that technically you generated, but income that legally belongs to both of you, since you're married and file a joint tax return.

Because of this "spousal Roth IRA" exemption, it doesn't matter if one spouse earns any money or not. Both of you can contribute the maximum amount allowed to separately held Roth IRAs as long as your combined income does not exceed the $166,000 limit.